What a load of cats. A far worthier use of time is reading is "Against the Gods: The Remarkable History of Risk" by Peter L. Bernstein. There are so many passages in the book cited from history/reality (as opposed to theory) that refute this premise that I scarcely know where to being quoting from it.

One has to get ones head out of the very dark place of focusing narrowly (on investing) if one ever wants to get actually educated on reality. Becoming educated on reality is the best hope we can ever have of approximating rational thinking using such frail and faulty processes as human cognitive/perceptual abilities. This has massive implications for all manner of investing, personal finance, and microeconomic activities.

I'm so confused. I thought people who invested starting in 2000 were barely breaking even.

The S&P 500 is about double what it was in January of 2000. That doesn't take inflation into account, but it also doesn't take dividends into account.

Vanguard's S&P 500 index fund return including dividends since 1/1/2000 was about 5.5% annualized or $10K invested on 1/1/2000 would be $26,544 on 11/30/2018. This is slightly less than the return for the index itself (accounting for transaction costs). See MorningStar S&P500 Performance chart

Boglesmind

That’s not encouraging for the risk “premium.”

2000 was probably the WORST time in recent history to invest.

And we still got 5.5% a year over the past 19 years. And of course all the money you invested in 2001, 2002, 2003, 2004, etc. has done far better.

If 5.5% is the worst case long-term return for the stock market, I see that as a huge positive.

I realized today, after researching it to post in another thread, that the S&P500 forward PE is 16.

I don't know what the future will bring. But I don't agree with anyone who says we are near the end of some incredible run and doomed to mediocrity (or worse).

Not singling you out but I just do not understand this sentiment. The Fed Funds rate is only at 2.25% and was near 0 for nearly a decade. A month ago Powell said we are far from normalization, the market drops 5-10% and nearly every bull is going catatonic. Two days ago he said we are close to the range of normalization (which could be anywhere from 1-6 more 0.25% hikes) and we are back in a bull market.

Doesn't this say something about the state of the markets, state of the economy and obscene financial repression/manipulation that a historically low FFR and the prospect of minuscule interest rate hikes lead to such reactions? Something is truly wrong and I will gladly short this market. Granted, I could be wrong and will use appropriate risk management but (if I have time and my photoshop finally works) I will happily show some charts to show there is more downside to come.

You sound like a trader. I’m in my 30’s and buying stock funds that I don’t plan to sell for decades, if ever. I am not concerned by bulls going catatonic or bears growling. Realistically, a big scary bear market would be great for me. But I don’t think it’ll happen from here.

Forward PE is around 16 and trailing is around 20. If those were doubled or tripled, I might see things differently. Furthermore, in a few decades, I’d bet textbooks will not see this rise since 2009 as one big bull market. They will correctly realize that it ended in 2015 and a new one began in 2016. But that’s not really important, after all.

Not a trader and would much prefer to let money just sit and grow. But, I don't see this as such an environment. Unfortunately, either sitting in cash and/or tactical trading may be the best route. What happens if the bear market lasts a decade or longer? What if bonds and stocks fall together. Yes, I know the stats (ave bear is 13 months, market always goes up, stocks are not/inversely correlated with bonds (not true) etc). But that assumption (just like my view of things) also requires a crystal ball.

There are many indicators to show this market is "overvalued" or not going to give a reasonable return to grow a next egg or live off of for retirement. If the stock market really continues to go parabolic at this point, I think that may signify a much worse situation than if all of the dead wood is cleaned out in one whack. Textbooks will definitely write about such a scenario, but none of the stories will be good.

I realized today, after researching it to post in another thread, that the S&P500 forward PE is 16.

I don't know what the future will bring. But I don't agree with anyone who says we are near the end of some incredible run and doomed to mediocrity (or worse).

Not singling you out but I just do not understand this sentiment. The Fed Funds rate is only at 2.25% and was near 0 for nearly a decade. A month ago Powell said we are far from normalization, the market drops 5-10% and nearly every bull is going catatonic. Two days ago he said we are close to the range of normalization (which could be anywhere from 1-6 more 0.25% hikes) and we are back in a bull market.

Doesn't this say something about the state of the markets, state of the economy and obscene financial repression/manipulation that a historically low FFR and the prospect of minuscule interest rate hikes lead to such reactions? Something is truly wrong and I will gladly short this market. Granted, I could be wrong and will use appropriate risk management but (if I have time and my photoshop finally works) I will happily show some charts to show there is more downside to come.

You sound like a trader. I’m in my 30’s and buying stock funds that I don’t plan to sell for decades, if ever. I am not concerned by bulls going catatonic or bears growling. Realistically, a big scary bear market would be great for me. But I don’t think it’ll happen from here.

Forward PE is around 16 and trailing is around 20. If those were doubled or tripled, I might see things differently. Furthermore, in a few decades, I’d bet textbooks will not see this rise since 2009 as one big bull market. They will correctly realize that it ended in 2015 and a new one began in 2016. But that’s not really important, after all.

Not a trader and would much prefer to let money just sit and grow. But, I don't see this as such an environment. Unfortunately, either sitting in cash and/or tactical trading may be the best route. What happens if the bear market lasts a decade or longer? What if bonds and stocks fall together. Yes, I know the stats (ave bear is 13 months, market always goes up, stocks are not/inversely correlated with bonds (not true) etc). But that assumption (just like my view of things) also requires a crystal ball.

There are many indicators to show this market is "overvalued" or not going to give a reasonable return to grow a next egg or live off of for retirement. If the stock market really continues to go parabolic at this point, I think that may signify a much worse situation than if all of the dead wood is cleaned out in one whack. Textbooks will definitely write about such a scenario, but none of the stories will be good.

What bear market are you referring to? U.S. stocks are merely in a correction.

Regarding valuations, I would offer that extensive research has found that valuations are not reliably mean reverting. They can stay 'high' or 'low' for many years; U.S. stocks have been 'high' since 1992, yet real returns from then until now have been slightly above average.

I would suggest that you find a strategy that (1) doesn't require a crystal ball and (2) you can stick with, no matter what. For many, that's buy-and-hold at some specific AA. For me, that's trend following. But fixing on a particular strategy will be better than trying to prognosticate.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

I'm so confused. I thought people who invested starting in 2000 were barely breaking even.

The S&P 500 is about double what it was in January of 2000. That doesn't take inflation into account, but it also doesn't take dividends into account.

Vanguard's S&P 500 index fund return including dividends since 1/1/2000 was about 5.5% annualized or $10K invested on 1/1/2000 would be $26,544 on 11/30/2018. This is slightly less than the return for the index itself (accounting for transaction costs). See MorningStar S&P500 Performance chart

Boglesmind

That’s not encouraging for the risk “premium.”

2000 was probably the WORST time in recent history to invest.

And we still got 5.5% a year over the past 19 years. And of course all the money you invested in 2001, 2002, 2003, 2004, etc. has done far better.

If 5.5% is the worst case long-term return for the stock market, I see that as a huge positive.

Well, no. You got 3.1% per year adjusted for inflation. From 2000-2012 (13 years), you got about -1% annually adjusted for inflation. You could have stayed in 1-month treasury bills and done as well as stocks until 2013. You had to endure market losses of around 50% twice during that period without bailing out. All the gains for the last 19 years were concentrated during the five years 2013-2017. The huge positive doesn't look quite so huge closer to the ground where we were traveling during that journey.

It's worth pointing out that enjoying the gains from stocks has required that one endures long periods where stocks are dead money, in terms of gains above those realized by holding cash (T-bills). Beginning in 1972, you had dead money in stocks for about 14 years. Then came a period of gains that lasted about 15 years until the middle of 2000; followed by a 14-year period of dead money until 2013. We've experienced gains since 2013. So, roughly 28 years of the last 49 have represented dead money. You have to be prepared to cross the desert to reach the oasis. Those desert crossings can be beneficial to folks who are putting money into stocks over a long term; but can be hell for travelers who are trying to hang onto what they've already accumulated or, even worse, trying to live off it.

May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

The S&P 500 is about double what it was in January of 2000. That doesn't take inflation into account, but it also doesn't take dividends into account.

Vanguard's S&P 500 index fund return including dividends since 1/1/2000 was about 5.5% annualized or $10K invested on 1/1/2000 would be $26,544 on 11/30/2018. This is slightly less than the return for the index itself (accounting for transaction costs). See MorningStar S&P500 Performance chart

Boglesmind

That’s not encouraging for the risk “premium.”

2000 was probably the WORST time in recent history to invest.

And we still got 5.5% a year over the past 19 years. And of course all the money you invested in 2001, 2002, 2003, 2004, etc. has done far better.

If 5.5% is the worst case long-term return for the stock market, I see that as a huge positive.

Well, no. You got 3.1% per year adjusted for inflation. From 2000-2012 (13 years), you got about -1% annually adjusted for inflation. You could have stayed in 1-month treasury bills and done as well as stocks until 2013. You had to endure market losses of around 50% twice during that period without bailing out. All the gains for the last 19 years were concentrated during the five years 2013-2017. The huge positive doesn't look quite so huge closer to the ground where we were traveling during that journey.

It's worth pointing out that enjoying the gains from stocks has required that one endures long periods where stocks are dead money, in terms of gains above those realized by holding cash (T-bills). Beginning in 1972, you had dead money in stocks for about 14 years. Then came a period of gains that lasted about 15 years until the middle of 2000; followed by a 14-year period of dead money until 2013. We've experienced gains since 2013. So, roughly 28 years of the last 49 have represented dead money. You have to be prepared to cross the desert to reach the oasis. Those desert crossings can be beneficial to folks who are putting money into stocks over a long term; but can be hell for travelers who are trying to hang onto what they've already accumulated or, even worse, trying to live off it.

Well, isn't that why most here suggest a balanced portfolio, particularly if you are living off it?
Not sure what you are suggesting as an alternative, 100% T-Bills? I would think that carries significantly more risk for a long retirement due to inflation eating away at your purchasing power.

Once in a while you get shown the light, in the strangest of places if you look at it right.

It's worth pointing out that enjoying the gains from stocks has required that one endures long periods where stocks are dead money, in terms of gains above those realized by holding cash (T-bills). Beginning in 1972, you had dead money in stocks for about 14 years. Then came a period of gains that lasted about 15 years until the middle of 2000; followed by a 14-year period of dead money until 2013. We've experienced gains since 2013. So, roughly 28 years of the last 49 have represented dead money. You have to be prepared to cross the desert to reach the oasis. Those desert crossings can be beneficial to folks who are putting money into stocks over a long term; but can be hell for travelers who are trying to hang onto what they've already accumulated or, even worse, trying to live off it.

It's worth pointing out that accumulating and retirement are two very different beasts.

Someone who was ACCUMULATING for 14 years from 1972-1986 became WILDLY rich by the late 90s.

All that money they put in year after year for 14 years was worth 7x-10x by the late 90s

Someone who was ACCUMULATING for 14 years from 1999-2013 has become fairly rich by today.

All that money they put in year after year, for 14 years was worth 3x-4x as much today.

The 9%-10% historical long-term annual returns of the stock market INCLUDES the crashes. Read that again.

I started seriously investing around 2000 or so. That decade long period of "dead money" has made me rich today.

In RETIREMENT, one should have a much more conservative allocation. I'm 50/50 now, about 5 years out from retirement, and 30/70 stocks/bonds would not be unreasonable for someone about to enter retirement.

Claiming one should worry about a decade of "dead" money is legitimate for a retired person, but that's why we suggest people should NOT have 100% stocks in retirement, but far less.

Claiming a decade of "dead" money is disingenuous for an accumulator who is still putting away money year after year. They don't invest all their money in 1972 or 2000. It's evenly spread out between all the years, and MOST of those years pay well.

Again, the fact that the ABSOLUTE WORST year to invest was 2000 and still gave a positive return over the long-term should be a very encouraging sign. But it's important to note that money invested in 1996,1997,1998,1999,2001,2002,2003 has done better, and in some cases far better.

It all averages out to a decent return.

Once more... The 9%-10% historical long-term annual returns of the stock market INCLUDES the crashes. Read that again.

I realized today, after researching it to post in another thread, that the S&P500 forward PE is 16.

I don't know what the future will bring. But I don't agree with anyone who says we are near the end of some incredible run and doomed to mediocrity (or worse).

Not singling you out but I just do not understand this sentiment. The Fed Funds rate is only at 2.25% and was near 0 for nearly a decade. A month ago Powell said we are far from normalization, the market drops 5-10% and nearly every bull is going catatonic. Two days ago he said we are close to the range of normalization (which could be anywhere from 1-6 more 0.25% hikes) and we are back in a bull market.

Doesn't this say something about the state of the markets, state of the economy and obscene financial repression/manipulation that a historically low FFR and the prospect of minuscule interest rate hikes lead to such reactions? Something is truly wrong and I will gladly short this market. Granted, I could be wrong and will use appropriate risk management but (if I have time and my photoshop finally works) I will happily show some charts to show there is more downside to come.

You sound like a trader. I’m in my 30’s and buying stock funds that I don’t plan to sell for decades, if ever. I am not concerned by bulls going catatonic or bears growling. Realistically, a big scary bear market would be great for me. But I don’t think it’ll happen from here.

Forward PE is around 16 and trailing is around 20. If those were doubled or tripled, I might see things differently. Furthermore, in a few decades, I’d bet textbooks will not see this rise since 2009 as one big bull market. They will correctly realize that it ended in 2015 and a new one began in 2016. But that’s not really important, after all.

Not a trader and would much prefer to let money just sit and grow. But, I don't see this as such an environment. Unfortunately, either sitting in cash and/or tactical trading may be the best route. What happens if the bear market lasts a decade or longer? What if bonds and stocks fall together. Yes, I know the stats (ave bear is 13 months, market always goes up, stocks are not/inversely correlated with bonds (not true) etc). But that assumption (just like my view of things) also requires a crystal ball.

There are many indicators to show this market is "overvalued" or not going to give a reasonable return to grow a next egg or live off of for retirement. If the stock market really continues to go parabolic at this point, I think that may signify a much worse situation than if all of the dead wood is cleaned out in one whack. Textbooks will definitely write about such a scenario, but none of the stories will be good.

What bear market are you referring to? U.S. stocks are merely in a correction.

Regarding valuations, I would offer that extensive research has found that valuations are not reliably mean reverting. They can stay 'high' or 'low' for many years; U.S. stocks have been 'high' since 1992, yet real returns from then until now have been slightly above average.

I would suggest that you find a strategy that (1) doesn't require a crystal ball and (2) you can stick with, no matter what. For many, that's buy-and-hold at some specific AA. For me, that's trend following. But fixing on a particular strategy will be better than trying to prognosticate.

Thanks. I am referring to the Bear Market that started on Oct 3rd, IMHO. If people want to distinguish a correction from a bear market by a -10% vs. a -20% threshold, well thats up to them. But, my first question was how was threshold defined? Did they know it arose from some off the cuff remark: https://twitter.com/McClellanOsc/status ... 9331723264. If you want to better define a bear market, I would recommend this: https://www.mcoscillator.com/learning_c ... ar_market/. If you still want to use a -20% definition, that your choice. I can always be wrong, but I have a pretty high conviction I will see you on other side of 20% likely within the coming year. From where I stand, we are in a bear.

Sure valuation metrics are poor timing metrics, but the techinicals are finally lining up. Coupled with the crazy Macro environment we are in, this is the most alive I have felt in a long time. And the stocks being high since 1992, yes, I gave the theory (developed by other experts) about the role of the boomers in that in a previous post and I stand by it.

Every strategy requires some assumptions of the future. IMHO, the most lethal position to take is to be beholden to one strategy (cough, cough buy and hold.....cough cough indexation) only to realize it was wrong for that environment. And as for sticking with a strategy, even many members on this site were questioning their resolve back in late 2008,early 2009. Just look up MTL...minimum tolerable loss.

From my standpoint, just be careful of the trend following. The volatility that is here and to come is going to rip a lot of people's faces off.

It's worth pointing out that enjoying the gains from stocks has required that one endures long periods where stocks are dead money, in terms of gains above those realized by holding cash (T-bills). Beginning in 1972, you had dead money in stocks for about 14 years. Then came a period of gains that lasted about 15 years until the middle of 2000; followed by a 14-year period of dead money until 2013. We've experienced gains since 2013. So, roughly 28 years of the last 49 have represented dead money. You have to be prepared to cross the desert to reach the oasis. Those desert crossings can be beneficial to folks who are putting money into stocks over a long term; but can be hell for travelers who are trying to hang onto what they've already accumulated or, even worse, trying to live off it.

It's worth pointing out that accumulating and retirement are two very different beasts.

Someone who was ACCUMULATING for 14 years from 1972-1986 became WILDLY rich by the late 90s.

All that money they put in year after year for 14 years was worth 7x-10x by the late 90s

Someone who was ACCUMULATING for 14 years from 1999-2013 has become fairly rich by today.

All that money they put in year after year, for 14 years was worth 3x-4x as much today.
...
In RETIREMENT, one should have a much more conservative allocation. I'm 50/50 now, about 5 years out from retirement, and 30/70 stocks/bonds would not be unreasonable for someone about to enter retirement.

Claiming one should worry about a decade of "dead" money is legitimate for a retired person, but that's why we suggest people should NOT have 100% stocks in retirement, but far less.

Very true, and far too many people forget that real investors are not single lump sums, in either the best or worst of times.

Not singling you out but I just do not understand this sentiment. The Fed Funds rate is only at 2.25% and was near 0 for nearly a decade. A month ago Powell said we are far from normalization, the market drops 5-10% and nearly every bull is going catatonic. Two days ago he said we are close to the range of normalization (which could be anywhere from 1-6 more 0.25% hikes) and we are back in a bull market.

Doesn't this say something about the state of the markets, state of the economy and obscene financial repression/manipulation that a historically low FFR and the prospect of minuscule interest rate hikes lead to such reactions? Something is truly wrong and I will gladly short this market. Granted, I could be wrong and will use appropriate risk management but (if I have time and my photoshop finally works) I will happily show some charts to show there is more downside to come.

You sound like a trader. I’m in my 30’s and buying stock funds that I don’t plan to sell for decades, if ever. I am not concerned by bulls going catatonic or bears growling. Realistically, a big scary bear market would be great for me. But I don’t think it’ll happen from here.

Forward PE is around 16 and trailing is around 20. If those were doubled or tripled, I might see things differently. Furthermore, in a few decades, I’d bet textbooks will not see this rise since 2009 as one big bull market. They will correctly realize that it ended in 2015 and a new one began in 2016. But that’s not really important, after all.

Not a trader and would much prefer to let money just sit and grow. But, I don't see this as such an environment. Unfortunately, either sitting in cash and/or tactical trading may be the best route. What happens if the bear market lasts a decade or longer? What if bonds and stocks fall together. Yes, I know the stats (ave bear is 13 months, market always goes up, stocks are not/inversely correlated with bonds (not true) etc). But that assumption (just like my view of things) also requires a crystal ball.

There are many indicators to show this market is "overvalued" or not going to give a reasonable return to grow a next egg or live off of for retirement. If the stock market really continues to go parabolic at this point, I think that may signify a much worse situation than if all of the dead wood is cleaned out in one whack. Textbooks will definitely write about such a scenario, but none of the stories will be good.

What bear market are you referring to? U.S. stocks are merely in a correction.

Regarding valuations, I would offer that extensive research has found that valuations are not reliably mean reverting. They can stay 'high' or 'low' for many years; U.S. stocks have been 'high' since 1992, yet real returns from then until now have been slightly above average.

I would suggest that you find a strategy that (1) doesn't require a crystal ball and (2) you can stick with, no matter what. For many, that's buy-and-hold at some specific AA. For me, that's trend following. But fixing on a particular strategy will be better than trying to prognosticate.

Thanks. I am referring to the Bear Market that started on Oct 3rd, IMHO. If people want to distinguish a correction from a bear market by a -10% vs. a -20% threshold, well thats up to them. But, my first question was how was threshold defined? Did they know it arose from some off the cuff remark: https://twitter.com/McClellanOsc/status ... 9331723264. If you want to better define a bear market, I would recommend this: https://www.mcoscillator.com/learning_c ... ar_market/. If you still want to use a -20% definition, that your choice. I can always be wrong, but I have a pretty high conviction I will see you on other side of 20% likely within the coming year. From where I stand, we are in a bear.

Sure valuation metrics are poor timing metrics, but the techinicals are finally lining up. Coupled with the crazy Macro environment we are in, this is the most alive I have felt in a long time. And the stocks being high since 1992, yes, I gave the theory (developed by other experts) about the role of the boomers in that in a previous post and I stand by it.

Every strategy requires some assumptions of the future. IMHO, the most lethal position to take is to be beholden to one strategy (cough, cough buy and hold.....cough cough indexation) only to realize it was wrong for that environment. And as for sticking with a strategy, even many members on this site were questioning their resolve back in late 2008,early 2009. Just look up MTL...minimum tolerable loss.

From my standpoint, just be careful of the trend following. The volatility that is here and to come is going to rip a lot of people's faces off.

Anyone who doubts we are currently in a bear market (started Oct 3) will quickly have those thoughts erased in the next few days to weeks. Just accept this fact. It will make it less painful.

And for God's sake, please don't think a 3-5% down day means the stocks are on sale and to buy the dip. You will likely regret it for the time being. This is going to continue at least until spring-summer of next year if not longer. If you have a cash allocation (even small), better to keep the powder dry right now. You are welcome in advance.

Anyone who doubts we are currently in a bear market (started Oct 3) will quickly have those thoughts erased in the next few days to weeks. Just accept this fact. It will make it less painful.

And for God's sake, please don't think a 3-5% down day means the stocks are on sale and to buy the dip. You will likely regret it for the time being. This is going to continue at least until spring-summer of next year if not longer. If you have a cash allocation (even small), better to keep the powder dry right now. You are welcome in advance.

I wish i had your level of certainty about the markets.
So, what are you doing about it? Shorting the market? Buying put options?

Once in a while you get shown the light, in the strangest of places if you look at it right.

I'm so confused. I thought people who invested starting in 2000 were barely breaking even.

The S&P 500 is about double what it was in January of 2000. That doesn't take inflation into account, but it also doesn't take dividends into account.

Vanguard's S&P 500 index fund return including dividends since 1/1/2000 was about 5.5% annualized or $10K invested on 1/1/2000 would be $26,544 on 11/30/2018. This is slightly less than the return for the index itself (accounting for transaction costs). See MorningStar S&P500 Performance chart

Boglesmind

That’s not encouraging for the risk “premium.”

2000 was probably the WORST time in recent history to invest.

And we still got 5.5% a year over the past 19 years. And of course all the money you invested in 2001, 2002, 2003, 2004, etc. has done far better.

If 5.5% is the worst case long-term return for the stock market, I see that as a huge positive.

Exactly! I still remember folks at work proposing to rename our 401k plan as 201k plan in jest since most funds in our plan lost 50+% and everything looked bleak. So if one happens to invest at the very top of irrationally exuberant market and still end up making 5.5% a year for 18 years, I'll take it. As some one who has experienced 2000 dot-com implosion and 2008-09 financial melt-downs, I feel pretty sanguine about what is going on now. I don't see any supernova.

BTW, this is not to suggest 100% stock allocation in case that is what Columbia is alluding to by risk "premium".
Boglesmind

What happened to "past performance does not predict future returns" ??

I think what happened between January 1926 and October 2018 is irrelevant to what will happen in the decades to come...there is no good scientific theory or evidence to suggest it is relevant. And the longer the horizon, the greater the noise. Economically it was a fascinating and very unusual century. The next one could be very different.

If one wants to make an argument about probable diminished returns in the next few years due to projected rising interest rates, or to political instability, I can accept that argument, though I still have no crystal ball. But based on past performance of only ninety two years? Nope.

5.5% is not the "worst case scenario" for the stock market. Not by a long shot. Ask a Japanese investor (who also has not experienced the "worst case scenario"). Nor is 30% or 50% or more the best case scenario. I don't know where people come up with things like that.

I realized today, after researching it to post in another thread, that the S&P500 forward PE is 16.

I don't know what the future will bring. But I don't agree with anyone who says we are near the end of some incredible run and doomed to mediocrity (or worse).

Not singling you out but I just do not understand this sentiment. The Fed Funds rate is only at 2.25% and was near 0 for nearly a decade. A month ago Powell said we are far from normalization, the market drops 5-10% and nearly every bull is going catatonic. Two days ago he said we are close to the range of normalization (which could be anywhere from 1-6 more 0.25% hikes) and we are back in a bull market.

Doesn't this say something about the state of the markets, state of the economy and obscene financial repression/manipulation that a historically low FFR and the prospect of minuscule interest rate hikes lead to such reactions? Something is truly wrong and I will gladly short this market. Granted, I could be wrong and will use appropriate risk management but (if I have time and my photoshop finally works) I will happily show some charts to show there is more downside to come.

You sound like a trader. I’m in my 30’s and buying stock funds that I don’t plan to sell for decades, if ever. I am not concerned by bulls going catatonic or bears growling. Realistically, a big scary bear market would be great for me. But I don’t think it’ll happen from here.

Forward PE is around 16 and trailing is around 20. If those were doubled or tripled, I might see things differently. Furthermore, in a few decades, I’d bet textbooks will not see this rise since 2009 as one big bull market. They will correctly realize that it ended in 2015 and a new one began in 2016. But that’s not really important, after all.

Not a trader and would much prefer to let money just sit and grow. But, I don't see this as such an environment. Unfortunately, either sitting in cash and/or tactical trading may be the best route. What happens if the bear market lasts a decade or longer? What if bonds and stocks fall together. Yes, I know the stats (ave bear is 13 months, market always goes up, stocks are not/inversely correlated with bonds (not true) etc). But that assumption (just like my view of things) also requires a crystal ball.

There are many indicators to show this market is "overvalued" or not going to give a reasonable return to grow a next egg or live off of for retirement. If the stock market really continues to go parabolic at this point, I think that may signify a much worse situation than if all of the dead wood is cleaned out in one whack. Textbooks will definitely write about such a scenario, but none of the stories will be good.

I am kind of in the same boat. I have 4.5 years left to max out my 401k then I'm done. It will then sit and do what it does. Not sure about $6K for a Roth IRA for 2019 frankly. I can put that towards a passive real estate investment that will pay me quarterly cash flow and a 2-3X equity multiple on exit. Rather than risk it producing absolutely nothing over 5-10 years.

Only 15% or so of my investable $ goes into paper. If negative real returns in the equities markets happen for the next 10 years - oh well, sometimes (quite often) I have to learn my lessons the hard way It won't make a big dent either way.

What happened to "past performance does not predict future returns" ??

I think what happened between January 1926 and October 2018 is irrelevant to what will happen in the decades to come...there is no good scientific theory or evidence to suggest it is relevant. And the longer the horizon, the greater the noise. Economically it was a fascinating and very unusual century. The next one could be very different.

Jeremy Siegel would disagree. His research going back into the 1800s suggests that stock returns over the 'very long-term' have been surprisingly constant.

At any rate, we don't know the future, and history has already shown us that our 'long-term' results may differ substantially from both historical returns and the very long-term future returns. But there are exceedingly few on this forum who are recommending that anyone plan on receiving anything close to historic average returns in stocks. Most of us are planning on receiving historically poor returns and going from there. The returns we actually get may be even worse, but if so, we'll adjust because we'll have to.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

What happened to "past performance does not predict future returns" ??

I think what happened between January 1926 and October 2018 is irrelevant to what will happen in the decades to come...there is no good scientific theory or evidence to suggest it is relevant. And the longer the horizon, the greater the noise. Economically it was a fascinating and very unusual century. The next one could be very different.

Jeremy Siegel would disagree. His research going back into the 1800s suggests that stock returns over the 'very long-term' have been surprisingly constant.

At any rate, we don't know the future, and history has already shown us that our 'long-term' results may differ substantially from both historical returns and the very long-term future returns. But there are exceedingly few on this forum who are recommending that anyone plan on receiving anything close to historic average returns in stocks. Most of us are planning on receiving historically poor returns and going from there. The returns we actually get may be even worse, but if so, we'll adjust because we'll have to.

1. I think expecting "historically poor results" is wise, I agree. It is better to be pleasantly surprised (as we all have been in the decade following the 2008 crash), rather than hanging hopes on a future that winds up disappointing us.

2. "Since the 1800s" is not "very long term". It is all recency bias. Even if you go back 210 years, to draw conclusions based on that regarding the next thirty is the statistical equivalent of saying that if the market went up an average of 1% every day last week, it will probably go up about 1% again tomorrow. Will Durant suggested that it took until the mid-19th century for European civilization to return to the level it was at the end of the second century. Not to mention that the last two centuries (and especially the last one) were perhaps the most remarkable centuries in the entire history of civilization in terms of economic growth. Are you betting that the next century will follow suit?

I'm not predicting gloom and doom. I'm merely stating that we don't have enough information to make predictions going out decades. We guess what will happen based on our knowledge of the past. Which is fine, but we should be humble enough to admit that the science is not there....we are guessing.

Last edited by protagonist on Thu Dec 06, 2018 12:17 pm, edited 2 times in total.

looking at 5 year rolling returns since VFIAX was founded makes the last 10 years look pretty "normal"...... the decade of the 2000s was more of the outlier.....

Edited: I think the outlier/shocking nature of the blog poster's article is an artifact of not having a lasting bear market and/or recession in the past 10 years. Otherwise, it looks to me like the market has reverted to closer to normal returns on an shorter term basis. This type of analysis, if conducted on shorter rolling return periods, may not look so shocking. This feels a bit like some data mining...... Not that I don't disagree with the cacophony of pronouncements of the next 10 years being less then average. Heck we have had 12 mos. of less than average.

I'm not predicting gloom and doom. I'm merely stating that we don't have enough information to make predictions going out decades. We guess what will happen based on our knowledge of the past. Which is fine, but we should be humble enough to admit that the science is not there....we are guessing.

I completely agree. We can't predict what will happen tomorrow, much less next week, next month, next year, or next decade. We simply do the best we can with the information we have available to us now.

This is part of the reason that I decided to become a trend follower. I'm not convinced that a long-term downward trend is out of the question, and I want to have some kind of downside protection, crude as it may be, beyond just muting my returns with bonds.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

I'm not predicting gloom and doom. I'm merely stating that we don't have enough information to make predictions going out decades. We guess what will happen based on our knowledge of the past. Which is fine, but we should be humble enough to admit that the science is not there....we are guessing.

I completely agree. We can't predict what will happen tomorrow, much less next week, next month, next year, or next decade. We simply do the best we can with the information we have available to us now.

This is part of the reason that I decided to become a trend follower. I'm not convinced that a long-term downward trend is out of the question, and I want to have some kind of downside protection, crude as it may be, beyond just muting my returns with bonds.

My less-than-perfect (but I think adequate) solution is to keep enough money in relatively very safe fixed investments (mostly CDs) to finance my retirement, which should be more than adequate including social security. That is my downside protection that allows me to sleep at night. The rest is in index funds....I consider that gambling money. I hope I win but I can theoretically lose badly and still survive with my current lifestyle intact, so I don't lose sleep over it.

If I had barely enough to finance my lifestyle at current levels going forward I would probably put it all in ultrasafe investments- I wouldn't get much richer but I would still be comfortable. If I had ten million dollars (or any amount really) over what I need (plus a reasonable buffer) I would put it all in the stock market. As a retiree my main concern is keeping up with inflation. I don't think in terms of AA percentages.

Last edited by protagonist on Thu Dec 06, 2018 7:27 pm, edited 1 time in total.

That is arguably the biggest issue that investors must face on an ongoing basis. And the only 'guarantee' to deal with it is TIPS, but TIPS do not always offer a positive real return as many wrongly believe that they do. But at least you know what your real yield will be when you buy them directly. For this reason, I would not buy TIPS in a fund.

Over the long-term, stocks have had a strong tendency to offer greater inflation protection than nominal bonds, but the intermediate time between now and ~20 years from now is, historically speaking, more uncertain.

I do like CDs, probably more so than most BHs.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

I don’t mind looking at historical data, but artibrary endpoints teach me nothing. Why would anyone give value to what happened from 2000-09? Why not from 1999-2008 or 2001-10? It’s the same difference.

That is arguably the biggest issue that investors must face on an ongoing basis. And the only 'guarantee' to deal with it is TIPS, but TIPS do not always offer a positive real return as many wrongly believe that they do. But at least you know what your real yield will be when you buy them directly. For this reason, I would not buy TIPS in a fund.

Over the long-term, stocks have had a strong tendency to offer greater inflation protection than nominal bonds, but the intermediate time between now and ~20 years from now is, historically speaking, more uncertain.

I do like CDs, probably more so than most BHs.

You make good points above, will.
Stocks have offered greater inflation protection in the past because they have done so well in the recent (100+ years) past. That does not mean they will in the future.
i-bonds and TIPS (if you know you can hold TIPS to maturity) are pretty much guaranteed to do a very good job protecting against inflation, and "high yielding" CDs with either relatively short maturities or relatively generous EWPs will at least not leave you too far behind if things go bad.

Continuous growth above and beyond inflation ("real" terms) is ultimately not sustainable. If you invested $1M at 5%/yr (compounding) 1000 years ago, today you would have $5,166,981,672,648,638,070,976,937,984. That might be enough to buy the entire universe!

Last edited by protagonist on Fri Dec 07, 2018 9:38 am, edited 1 time in total.

Why do you care about whether or not this is a correction or bear market? Do you care whether we are below or above the 200 day moving average? Do you care whether we are above or below the Bollinger bands? Bear market and correction are arbitrary quantitative measures. If you don't care about technical analysis, you shouldn't care about the definition of a bear market or a correction either.

Anyone who doubts we are currently in a bear market (started Oct 3) will quickly have those thoughts erased in the next few days to weeks. Just accept this fact. It will make it less painful.

And for God's sake, please don't think a 3-5% down day means the stocks are on sale and to buy the dip. You will likely regret it for the time being. This is going to continue at least until spring-summer of next year if not longer. If you have a cash allocation (even small), better to keep the powder dry right now. You are welcome in advance.

I wish i had your level of certainty about the markets.
So, what are you doing about it? Shorting the market? Buying put options?

Thanks, I grow more certain of this by the day.
Having a large percent in cash is the easiest.
Shorting is tough. You have to watch it like a hawk. And just yesterday shows the unanticipated risks to shorting such as intervention and market manipulation. None of the powers that be want the market to have a major correction. The CME halted trading after a 2% move Wed night when its regulations only allow pauses at 5% moves. Interestingly, Etrade was down yesterday morning trapping a lot of bulls. Not saying this is a conspiracy but it was very coincidental that a major trading platform wouldn't allow people to sell the morning after a huge overnight drop. Plus, the volatility both up and down tends to trap both the longs and the shorts at different times and most people usually lose money regardless if you are long or short. So, really a lot of things going against trying to short these markets.
So am I shorting....absolutely, but for only a portion of my accounts. And there are some things I am long in too.

I believe that a mental shift is in order. It is foolish to passively buy equities, or anything, because it has gone up. Even if we are looking at long historical periods. This is foolish thinking.

What is not foolish? The choice to invest one’s excess capital in thousands of businesses around the world, because they are collectively the growth engine that power human society, and will bring all of the improvements to life, environment and knowledge over the many years to come.

There will be broad fluctuations in how other people value these assets. But what I want to own is the underlying asset, not just the changes in price that it offers. I represent a tiny slice of humanity. I believe it is wise to own a tiny slice of all that humanity has to offer.

If you are retired, living within your means, and you are happy with your lifestyle, the amount of work and/or risk it will take to make more money is not likely to buy you much (if any) more happiness, but the process could cause you a lot of anxiety. If I luck out and double or triple my nest egg via my investments I doubt I would be any happier....a little more secure I suppose but not much....

On the other hand, if you lose money to the extent of compromising your lifestyle or security that could cause you a lot of pain.

-The fact that it results in a bell curve makes it especially obvious that it is a poor technique when trying to make inferences about events that supposedly should have only a tiny chance of occurring.

While I agree that there are issues with the article, this is not one of them. The plots in the piece do not reflect assumptions about stock market returns; they illustrate the different Sharpe ratios obtained by bootstrapping sequences of returns, and it is very common for normalized functions of very non-normal and odd-looking phenomena to follow the bell curve. See: central limit theorem.

As a concrete example, consider rolling a die 100 times. Each roll has an equal probability of returning 1 through 6, which is nothing like the bell curve. But with high confidence I can tell you the average across all 100 rolls will be "near" 3.5, where "near" is very well approximated by a normal distribution with mean 3.5 and standard deviation 0.17.

For the article, provided the results are generated in such a way that each simulation is independent from the next and the process is identical the whole way through (this is i.i.d. in statistics jargon), and the summary function is something sensible (like calculating an average), then I'd expect that plotting the results of the simulations would give something like a bell curve.

Assuming the author did the typical bootstrap with replacement - imagine shuffling a deck of cards, drawing one, shuffling it back in and drawing another, etc. - then the first requirement is met. Also, I looked up the formula for calculating the Sharpe ratio and it appears to be a z-score, i.e. a fancy average. So both requirements are met and if anything I would be suspicious if the plot didn't look like a normal distribution

-The fact that it results in a bell curve makes it especially obvious that it is a poor technique when trying to make inferences about events that supposedly should have only a tiny chance of occurring.

While I agree that there are issues with the article, this is not one of them. The plots in the piece do not reflect assumptions about stock market returns; they illustrate the different Sharpe ratios obtained by bootstrapping sequences of returns, and it is very common for normalized functions of very non-normal and odd-looking phenomena to follow the bell curve. See: central limit theorem.

As a concrete example, consider rolling a die 100 times. Each roll has an equal probability of returning 1 through 6, which is nothing like the bell curve. But with high confidence I can tell you the average across all 100 rolls will be "near" 3.5, where "near" is very well approximated by a normal distribution with mean 3.5 and standard deviation 0.17.

For the article, provided the results are generated in such a way that each simulation is independent from the next and the process is identical the whole way through (this is i.i.d. in statistics jargon), and the summary function is something sensible (like calculating an average), then I'd expect that plotting the results of the simulations would give something like a bell curve.

Assuming the author did the typical bootstrap with replacement - imagine shuffling a deck of cards, drawing one, shuffling it back in and drawing another, etc. - then the first requirement is met. Also, I looked up the formula for calculating the Sharpe ratio and it appears to be a z-score, i.e. a fancy average. So both requirements are met and if anything I would be suspicious if the plot didn't look like a normal distribution

This, on the other hand, I completely agree with - bootstrapping doesn't seem like a suitable technique to begin with!

Right, but that's the entire point that you missed.
-The stock market is not like rolling dice
-Stock returns are not a random walk; they are merely unpredictable
-Sequence matters greatly, therefore
-Shuffling the deck is a terrible way to examine rare market occurrences
-Stock returns do not follow a bell curve or normal distribution, and resulting volatility and other parameters do not either
-Rare events are far more likely than this model suggests
-For example many people are fond of pointing out that if stocks traded on the NYSE every day since the universe began, the crash of 1987 would have been unlikely to have happened even once in the history of existence, much less in our lives, if standard distributions were an accurate model
-I learned from Mandelbrot that unusual periods of calm similarly occur far more often than would be expected
-Therefore it was readily apparent that the linked article was bogus and based on an atrocious model of market behaviour for its intended purpose
-Normally, normal distributions are "close enough", but they fail abjectly at their extremes such as this article did

You can read the generalities of this all over the forum and in many other places, but Mandelbrot's "(mis)Behaviour of Markets" goes into greater detail and broader horizons. Sorry for the late response, I didn't log in recently.

I'm not 100% sure what I've missed As I said in my last sentence, the model assumptions do not seem to be particularly good ones.

What I disagreed with is simply your earlier assertion that noticing a chart "results in a bell curve" gives any useful information about the techniques used and whether they are good or poor ones for a given problem. I'm an applied statistician. I've used resampling methods in my work, and the nonparametric bootstrap is a fantastically effective method for understanding variability. It makes no distributional assumptions about the underlying phenomenon. Are you familiar with the central limit theorem? The chart is an illustration of the CLT, not evidence against the author's approach. That's what I was getting at with the dice example; the CLT applies even when the underlying phenomenon is known to not be normally distributed.

I'm not 100% sure what I've missed As I said in my last sentence, the model assumptions do not seem to be particularly good ones.

What I disagreed with is simply your earlier assertion that noticing a chart "results in a bell curve" gives any useful information about the techniques used and whether they are good or poor ones for a given problem. I'm an applied statistician. I've used resampling methods in my work, and the nonparametric bootstrap is a fantastically effective method for understanding variability. It makes no distributional assumptions about the underlying phenomenon. Are you familiar with the central limit theorem? The chart is an illustration of the CLT, not evidence against the author's approach. That's what I was getting at with the dice example; the CLT applies even when the underlying phenomenon is known to not be normally distributed.

Hope this clarifies my stance -- I enjoy the discussion!

Sorry I am an engineer (you will also soon observe a geophysics background) but am not otherwise particularly familiar with statistics, so I will not be able to use appropriate terminology outside of the basics. I think one of the roots of the issue is that, unlike the roll of dice, market returns are not independent of past returns. You absolutely can analyze them as you suggest but there are times where you will be predictably and badly wrong. They are somewhat like say, weather, or earthquakes. Let's use earthquakes because I was just thinking about them.

For earthquakes, and to a much lesser extreme markets, usually nothing happens, and when things do happen, several of them are likely to happen in a row. Suppose you measured the total slip per day at a given point on a fault line every day for 100 years. Then you assigned a standard distribution to the recorded data and noted the mean, median, and 1, 2, and 3-sigma ground motions. You would have a terrible model of earthquake behaviour because on most days nothing happened, on a few days something minor happened, and on rare events or perhaps not at all during your study the ground shifted cataclysmically.

To compound your mistakes, you then try to predict future earthquake probabilities by randomizing your data. Awful awful awful. Earthquakes are not independent events, and one quake is likely to be followed by many other significant quakes, the aftershocks. Occassionally a large earthquake is followed by a massive earthquake and is retroactively labeled a "foreshock". Similarly, days when nothing happens are usually followed by more days when nothing happens. Generally, most of the motion at a particular point on a fault happens on only a few days in a millenium, and those days are not independent of each other. Earthquakes are an extreme, but markets exhibit this behaviour to a lesser extent. There are certain statements such as "given the mean ground motion of 2 inches per year I am surprised the ground didn't move at all this year!" and "wow a magnitude 7 earthquake! that is so far out of the normal for the past century that it is a 15 sigma event which is basically impossible!" that are ludicrous even on superficial examination. They fundamentally miss the concept of how faults move. Similar for market motions, though obviously markets are not nearly as extreme in this respect as earthquakes. Still, the article stands out as missing the concept.

I'm so confused. I thought people who invested starting in 2000 were barely breaking even.

The S&P 500 is about double what it was in January of 2000. That doesn't take inflation into account, but it also doesn't take dividends into account.

Vanguard's S&P 500 index fund return including dividends since 1/1/2000 was about 5.5% annualized or $10K invested on 1/1/2000 would be $26,544 on 11/30/2018. This is slightly less than the return for the index itself (accounting for transaction costs). See MorningStar S&P500 Performance chart

Boglesmind

That’s not encouraging for the risk “premium.”

2000 was probably the WORST time in recent history to invest.

And we still got 5.5% a year over the past 19 years. And of course all the money you invested in 2001, 2002, 2003, 2004, etc. has done far better.

If 5.5% is the worst case long-term return for the stock market, I see that as a huge positive.

I'd emphasize the word "recent". I'm not sure how far back you mean, but if you are talking about 19 year periods, there have been less than five consecutive ones since the Great Depression.

And adding intermittent points does not make your conclusion more statistically robust.

Let me give you an example. Say you lived in Portland, OR. You wake up at 6 AM Friday morning. Would you confidently say, because it did not rain in the previous four 24 hour periods (Mon 6 AM-Tues 6 AM, Tues 6 AM-Wed 6 AM , Wed 6 AM-Thurs 6 AM, Thurs 6 AM-Fri 6 AM), that it will probably not rain today? Of course not.

Now let's break it down to consecutive one second intervals. There are 86,400 seconds in a day, or 259,200 seconds between Monday 6 AM and Thursday 6 AM. So would you be any more confident in lack of rain on Friday if it did not rain in the 24 hour period starting every second between Monday 6 AM and Thursday 6 AM? Now you have 259,200 data points, as opposed to four data points in the first example. That sounds impressive. But the answer is still "of course not". Statistically you should be no more confident.

That is, more or less, the statistical equivalent of saying that, starting every year, or every day, or even every second, since The Great Depression, one would never have gotten less than a 5.5% annual return over a 19 year period (if even that statement is true). Does that make you confident that if you invested today you would likely not do much worse than 5.5% over the next 19 years? I hope not.

For earthquakes, and to a much lesser extreme markets, usually nothing happens, and when things do happen, several of them are likely to happen in a row. Suppose you measured the total slip per day at a given point on a fault line every day for 100 years. Then you assigned a standard distribution to the recorded data and noted the mean, median, and 1, 2, and 3-sigma ground motions. You would have a terrible model of earthquake behaviour because on most days nothing happened, on a few days something minor happened, and on rare events or perhaps not at all during your study the ground shifted cataclysmically.

Agreed, this would be a terrible model. The magnitudes of earthquakes definitely do not follow a normal distribution. However, suitably computed averages of multiple earthquakes do.

Let's see some data. I found a USGS dataset of 5.5+ magnitude earthquakes from 1965-2016 here: https://www.kaggle.com/usgs/earthquake-database. It's a 52-year period including 23,412 recorded earthquakes, more than enough to have fun with. Here's some summary information about the earthquake magnitudes.

Naturally, just because a mean and standard deviation can be computed for a dataset doesn’t mean anything sensible can be said about the mechanism underlying the data generating process. Say we made the mistake of applying a normal (Gaussian) distribution to the data and computing the implied counts of earthquakes above a certain magnitude. To illustrate, here’s a quick plot of the 23412 earthquake magnitudes with the distribution N(5.88, 0.422) superimposed.

Under this bad normal model, how many 7.0+ earthquakes would be expected over the time period? 96.7, much less than the 738 observed in actuality. As expected, a normal distribution is an exceptionally poor approximation to earthquake magnitudes. Besides the truncation issue where no earthquakes below 5.5 were included in the data, there is also an obvious long right tail.

Even though earthquake magnitudes clearly do not follow the Gaussian distribution, suitably normalized averages will eventually do so. Let’s look at the average magnitudes of all 5.5+ earthquakes by month.

This is already closer to a normal distribution. Under this model, how many months would we expect to see an average earthquake magnitude of 6.1+? 8.62, compared to 22 months in actuality. While the model is still not a great fit, we see that simply aggregating the data led to a distribution that is better approximated by the normal.

OK, now let's talk bootstrapping. I resampled the historical dataset once to generate a new average magnitudes by month plot and ended up with the following:

This is actually a little more variable than the historical data, but appears pretty similar. Now, the normal approximation predicts 23.6 months with 6.1+ average magnitude earthquakes, and in actuality 27 months were observed in this resampled dataset. So the bootstrapped estimate already provides better results than a model using the actual historical data!

Is this a feature or coincidence? Let’s create 1,000 bootstrapped datasets to check. Here is a plot of the results.

We’ve finally managed to create a normal distribution out of earthquake data. Note that the observed mean across all simulations, 23.61, falls very close to the true count observed in the historical data set, 22.

How can this be? This last plot is a plot of averages: each observation is a count of months across the entire 52-year period, not a count of individual months anymore. We know that within each 52-year history earthquakes are not independent; however, the unit of analysis is now the set of “alternate 52-year histories” which are indeed independent from one another. With 1,000 of these alternate histories the normal approximation is very good.

After all that, here are my takeaways.

1) Bootstrapping does not require the usual modeling assumptions on a dataset. If all you’re trying to do is estimate a quantity like mean or standard deviation, it doesn’t matter if the data follows a typical distribution, if individual observations are i.i.d., if there is time dependence, etc.

2) Plotting bootstrapped estimates tends to result in a normal distribution even when the underlying phenomenon is not normal, displays time dependence, spatial dependence, etc.

3) The fact that the author's bootstrapped Sharpe ratios follow a normal distribution demonstrates that he executed a bootstrap correctly, not that his underlying model was wrong. We actually can't say much about the underlying model just based on the bootstrapped results.

I'll even go one step further. If Professor Mandelbrot had created a stock market model that accounted for all the behaviors he observed, and I were able to use the model to generate alternate histories for the stock market and computed all the Sharpe ratios via bootstrapping, I'd wager these bootstrapped ratios would still follow a normal distribution!

Right, but by combining the data for all earthquakes around the world you are losing the "sequence matters" idea because globally they are reasonably independent of each other. Both San Francisco and the S&P500 are more likely to go 10 years without a major shock than what that method would indicate. Assuming that any month is as likely to produce a major shock as any other month is ignoring the underlying behaviour of each, where long periods of relative calm are the norm.